You’ve been a good taxpayer. For years your returns have all been filed on time and your balance dues have been timely paid. Then you have a bad year and you end up with a failure to file or a failure to pay penalty. Before you pay the penalty you might want to check and see if the IRS will waive (abate) the penalty.
The IRS will abate a penalty for many reasons; if the taxpayer has reasonable cause for having the penalty, there may be waivers set by law, the IRS may have made a mistake or you might qualify for an administrative waiver. But you have to ask for the waiver especially the First Time Abatement.
The First Time Abatement (FTA) is an administrative waiver that the IRS doesn’t publicize too much. (Don’t believe me? Try running a search for the program on IRS.gov.) A TIGTA report found that in 2010 1.65 million taxpayers qualified for the program but only 8.8% of them actually received the waiver. FTA is available for individuals and business. For individuals, the program can abate the failure to file and failure to pay penalties for one tax year. Businesses can also use the FTA for the file and pay penalties as well as late filing penalties. They can also request FTA for one quarter’s failure to deposit (payroll). FTA is not available on Estate and Gift Tax return. Nor will the program abate the estimated tax or accuracy penalties.
To qualify for FTA, the taxpayer must have been compliant for at least 3 years. That means all their returns have to have been filed and they didn’t have any significant penalty, except the estimated tax penalty, during that 3 years. FTA can be requested by phone or in writing but it has to be requested. The IRS won’t volunteer the information.
For more info, check out Jim Buttonow’s cpa2biz.com article on FTA.